District Energy - 2006 First Quarter

Industry
News

global imbalance between high investment and low consumer spending, according to an analysis issued in December by The Conference Board, the global research and business membership organization.

The steady rise of global commodity prices since 2002 has been led by spiraling oil prices. There have been a number of additional factors motivating these increases: exceptionally low interest and inflation rates, a surge in emerging market demand led by heavy investment in China, the acceleration of global manufacturing activity in 2004, and a shortfall in natural resource investment for almost 20 years.

“The relationship between U.S. crude oil stocks and oil prices has become unhinged during the past year, probably due to new demand/supply factors heavily influenced by China,” says Gail D. Fosler, executive vice president and chief economist of The Conference Board. Her analysis appears in “Straight Talk,” a newsletter designed exclusively for members of The Conference Board’s global business network.

These imbalances have generated major crises in the past, both in the U.S. and abroad, although there are important offsets – particularly by deep discounting in other prices – today. In spite of recent dips in energy prices and holiday promotions, consumers across the U.S. will be hard hit in the short term.

Says Fosler: “The recent energy shock is reminiscent of the 1970s. Rising gasoline prices have taken the energy share of consumer spending from about 4 percent in 2001 to 6. 5 percent this September – the highest level in more than 20 years.”

While oil prices hit new highs during the recent hurricane crises, the recent surge was not sustainable and oil prices have already declined again. But current oil prices are still well above the level consistent with their long-term fundamentals. In the coming months, oil prices should continue to fall toward levels more consistent with long-term economic fundamentals.

“Still, even if oil prices fall to $40 a barrel, natural gas prices are likely to remain at about $7 per MMBtu, which is

still above the prevailing price of the last 10 years,” says Fosler.

For more information, visit www.con ference-board.org.

IRS Seeks Applications for
Clean Energy Bonds

In December, the U.S. Internal Revenue Service (IRS) announced a request for applications for renewable energy projects to be financed with up to $800 million in tax-credit bonds. Projects that generate clean power from wind, biomass, geothermal, solar energy, hydropower, small irrigation power facilities, landfill gas, trash combustion, or certain refined coal production facilities may qualify for these loans. This Clean Renewable Energy Bond program was established by the Energy Policy Act of 2005.

Only cooperative electric companies or government bodies are eligible to apply for financing. However, government bodies could be interpreted to include public colleges and universities, schools or other state, local or municipal agencies.

Applications are due by April 26, 2006. For additional information on this program see the IRS solicitation ( www.irs.gov/pub/ irs-drop/n-05-98.pdf) or the American Public Power Association press release ( www.appanet.org/files/PDFs/APPAHailsBo ndProgram12-13-05.pdf). Background on tax-credit bonds is available in a Congressional Budget Office report, which is available at www.cbo.gov/showdoc.cfm ?index=5624

Chocolate Plant Opts
for Cogen

The Daily Review in Hayward, Calif., reported Jan. 1 that the Ghirardelli Chocolate Co. plant in San Leandro, Calif., now generates its own electricity through cogeneration, which emits heat at 900 degrees F.

The plant – which refines 150,000 pounds of chocolate into candies every day – uses the hot water by recirculating it around the tanks to keep the chocolate from freezing up. The heat also is used in a newly installed absorption chiller, which

converts cold water into cool air. The chiller keeps the building’s 400 workers comfortable and the boxed chocolate in storage from melting. It saves 2 million k Wh of electricity and $250,000 per year in energy bills.

The initial $2 million investment has paid off, with total savings topping $1 million a year. Ghirardelli is one of several companies Pacific Gas & Electric Co. (PG&E) has worked with on long-term savings through technology upgrades. PG&E reports that paybacks are usually within a year or a year-and-a-half.

Ghiradelli also has opted for reuseable plastic shipping boxes to replace cardboard boxes, which were costing the company more than $500,000 per year.